The following information is available for a company's utility cost for operating its machines over the last four months. Using the high-low method, the estimated total fixed cost for utilities is:
A) $1,500.
B) $3,600.
C) $6,000.
D) $3,300.
E) $2,100.

Question

The following information is available for a company's utility cost for operating its machines over the last four months.  Using the high-low method, the estimated total fixed cost for utilities is:
A) $1,500. 
B) $3,600. 
C) $6,000. 
D) $3,300. 
E) $2,100.

Quizplus · Accepted Answer

Variable cost per unit = Change in cost/change in units (using highest and lowest level of activity)
($8,100 − $3,600)/(2,400 − 600) = $2.50 per unit
Fixed cost = Total cost (high or low) − (variable cost per unit × hours (high or low))
$8,100 − ($2.50 × 2,400) = $2,100
OR $3,600 − ($2.50 × 600) = $2,100

The Following Information Is Available for a Company's Utility Cost